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  3. Radboud Universiteit Nijmegen (RU)
  4.  
  5. Introduction to economics and business (MANBIN116BA)

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Summary Introduction to Economics and Business

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Lecture notes from the course "Introduction to Economics and Business" in the bachelor of Business Administration composed in one summary

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Voorbeeld 4 van de 48  pagina's

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  • H1, h2, h4, h5, h6, h8, h9, h10, h11, h12
  • 5 juni 2020
  • 11 juni 2020
  • 48
  • 2019/2020
  • Samenvatting

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Voorbeeld van de inhoud

Introduction to economics and business

Overview
Principles: 1,2,3,4.5,4.7
The Economy: 1.2, 1.6-1.8, 1.11, 3.3, 6.1-6.2, 7.6, 8.1-8.2, 8.4-8.7,
D&S: 1,2,4,5,6,8,9,10,11,12

1) Introduction
- Principles: 1
- The Economy: 3.3 & 7.6
2) Trade & Exchange
- Principles: 2
- The Economy: 1.6-1.8
3) Markets
- Principles: 3, 4.5, 4.7
- The Economy: 8.1-8.2 & 8.4-8.7
4) The firm & global economy (not in the exam)
- The Economy: 1.2, 1.11, 6.1 & 6.2
5) Markets & information
- D&S: 1, 2, 4
6) Game theory
- D&S: 4, 5
7) Transaction costs economics
- D&S: 9
8) Agency theory and corporate governance
- D&S: 8 + extra literature on BS
9) Behavioral theory of the firm
- D&S: 5,6
10) Competitive & corporate strategy
- D&S: 10,11
11) Mergers & acquisitions and FDI
- Literature on BS
12) Hybrid forms & evolutionary approaches to organizations
- D&S: 12 + literature on BS

,Lecture 1: Introduction
Principles: 1
The Economy: 3.3 & 7.6

Macroeconomics: studies how the aggregate economy behaves with reference to inflation,
price levels, rate of growth, national income, unemployment and more
Microeconomics: focuses on individual decisions

Economics  all (economics) interaction between individuals, organizations and
governments
- Economics is a subject area and a way of viewing the world
 How humans make decisions in the face of scarcity
Scarcity: human wants for goods, services and resources exceed what is available 
limited supply (NL: schaarste)
- When this interaction increases in volume  economic growth

Economic growth because of productivity growth
 productivity growth because of capitalism
- Private property
- Firms & markets
- Technology, specialization & efficiency

Often a conflict between efficiency and inequality

 The economy is the sum of all individual choices of people and organizations
 Governments use laws, rules and incentives to influence economic interaction

How do we make these choices?
 in tradition economics ‘rational’ and ‘maximizing/optimizing’ behavior is assumed
 nowadays lot of attention for ‘bounded rationality’ and ‘cognitive biases’
Bounded rationality = we want to make smart choices, but we are just not smart enough
Cognitive biases = thinking mistakes

The economic problem
 The economic problem = how to make the best use of the available resources
- What and how much has to be produced?
- How should this be produced?
- Who will receive the produced goods and services?

Resources: Land, labor, capital & entrepreneurship
Reward: rent, wages, interest & profit

 Division of labor = the splitting of composite tasks into their component parts and having
these performed separately
- Leads to productivity increases  increasing wealth of nations

,Our “wants” are unlimited, our resources are not  scarcity
Opportunity costs  every choice you make comes with a cost
- Scarcity  choices (tradeoffs)  opportunity costs
- No such thing as a free lunch (even though the lunch is free, you could have been
doing something else instead of eating the free lunch)
- What would you be doing if you weren’t here right now?  second choice

The “net value” of that second choice are your opportunity costs
Net value = “value” of alternative – costs of alternative

Opportunity costs (should) affect behavior:
- What is the influence of your salary on attending lectures?
- The line in a supermarket  taking free time away
- “for that price, I can make it myself” weird to say since you have opportunity costs
 Bread in supermarket = 2,50  make it yourself will take a few hours in which you could
have earned a lot more money than 2,50
Time = money

Take into account explicit and implicit costs = opportunity costs
For every choice:
- Value of that choice (utility/happiness/profit)  how to measure
- Explicit costs of that choice  what does it cost?
 A clear direct payment of cash (whether actual cash or from debit)
- Implicit costs of that choice  what do I give up?  opportunity costs
The value – the explicit costs of the second choice
 The benefit of the next best option

Economic costs of a choice  explicit costs & implicit costs
 which choice to make?
- Choice which has higher “value” than economic costs
- Economic rent: difference between “value” and “economic costs”
 You receive an economic rent from taking an action when it results in a benefit
greater than its economic cost
Example Adele & Rihanna
- Free ticket for Adele  you are willing to pay 60,-
- Ticket for Rihanna = 60,-  willing to pay 80,-
 Adele: explicit costs are 0, value is 60,-, opportunity costs is 20,- for Rihanna
Economic rent = 60 – 20 = 40
 Rihanna: explicit costs are 60,- value is 80,-, opportunity costs is 60 for Adele
Economic rent = 20 – 60 = -40

You should go to Adele
_____________________________________________________________________
If you could sell your ticket from Adele for 50,- (not selling is the same as buying)
Going to Adele: Value of 60 – explicit costs of 50 – opportunity costs of 20 = -10
Going to Rihanna: Value of 80 – explicit costs of 60 – opportunity costs of 10 = 10

You should go to Rihanna

, What is the real price of buying a product?
 The alternative product you cannot buy
- If a firm can make 100 TV’s or 70 laptops in one hour
 Price laptop = 10/7 TV
 Price TV = 7/10 laptop

Sunk costs
- Sunk costs  costs that cannot be recovered
- Sunk costs fallacy  (wrongly) taking sunk costs into account in decision making
- Sunk costs affect our emotions, we experience them as losses

Marginal analyses
= The process of breaking down a decision into a series of ‘yes or no’ decisions  An
examination of the additional benefits of an activity compared to the additional costs
incurred by that same activity
- With opportunity costs we see which choice we should make between two
alternatives
- Another choice we have to make: how much of something should we produce, buy or
spend our time on?

“Rational” and “optimizing” behavior
- Which choice yields the highest outcome?
 What is the most efficient choice? Which quantity yields the highest profit,
happiness, utility?

Marginal returns/benefits  what is the return/benefit of one extra unit?
Marginal costs  what are the costs of one extra unit?
Most efficient point: marginal returns = marginal costs

Net benefit = how much happiness have gained?  add up benefits and subtract costs
= difference between the marginal benefits and marginal costs of an action
- When the total benefits rise more than the total costs  the action is logical
- When the total costs rise more than the total benefits  the action is illogical
 As long as the marginal benefit is positive we should increase our activity

Capitalism  market economy
- Resources are privately owned
- The economic problem is “solved” using markets and prices
- Society determines through demand what is produced and how this is produced 
individual decision of people and organizations
- All these actors should take their opportunity costs into account and use marginal
analysis to decide what and how much to produce/buy

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